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12.11.2009

Bank Austria Business Indicator:
Spring awakening in the midst of winter, but trouble looming on the horizon

  • Bank Austria Business Indicator continued to improve in October
  • Following gains in the third quarter, economic growth is expected to speed up by the end of the year
  • Weak investment and difficulties on the labour market to slow down growth in 2010
  • Chance for sustainable upswing will not come until 2011

The Austrian economy has clearly started to bounce back from its low and is recovering gradually. "The Bank Austria Business Indicator improved to -0.4 points in October, up from -0.7 in the previous month. The Indicator has been climbing for half a year, which suggests that the upward trend in the domestic economy will persist," said Bank Austria's chief economist, Stefan Bruckbauer. 

The upward trend in the Bank Austria Business Indicator in October was driven by the sustained improvement in sentiment in Austria. Despite the difficult situation on the labour market, consumer confidence is at its highest level since September of last year. At the same time, business expectations for European and Austrian industry are improving despite the fact that crude oil prices and the weak USD are hampering growth. "As a result of the continued improvement in business expectations for industry and consumer sentiment, we expect the economic recovery to pick up steam in the months ahead. Following the Austrian economy's moderate growth by our estimates in the third quarter of 2009, at the end of the year GDP growth will increase to around 0.5 per cent compared to the previous quarter," said Bruckbauer.

Inventory restocking and economic stimulus programmes come to an end – recovery will soon lose momentum
The boost in economic growth that Bank Austria's economists expect around the end of the year will come as a result of the fact that the world's economic stimulus programmes are taking their full effect on global demand. Domestic demand is also reacting to the fiscal measures within Austria. Following a considerable decline in inventories during the downturn, inventory restocking is driving current economic growth. Like the positive effects of the global economic stimulus programmes, this effect will soon taper off. "The first international indicators, for example for new orders in the US, are already portending a slowdown in economic growth. The economic recovery in Austria will lose a lot of its momentum in the first quarter of 2010," said Bank Austria economist Walter Pudschedl.

"According to our estimates, two factors will take the wind out of the sails of economic recovery at the beginning of next year. On one hand, there is currently no end in sight to weak investment, and on the other, the domestic labour market will put a major damper on private consumption in the coming months," continued Pudschedl. Subdued investment on the part of companies is being caused by the currently low level of capacity utilisation in many sectors, the poor liquidity situation due to the deterioration in earnings, the changes expected in the overall policy framework such as equity capital requirements and supervisory regulations, and market participants' more cautious assessment of risk. "As a result of insufficient capacity utilisation, the economic recovery does not have the strength it needs to bring about a rapid reversal on the labour market, although we are now seeing the first signs of a slowdown in job cuts. However, the number of unemployed will rise to over 350,000 people by the end of 2009, bringing the unemployment rate in Austria to just under 10 per cent," said Bruckbauer.

Bank Austria's economists expect a reversal on the labour market to come at the earliest in the second half of 2010. And only once this reversal has occurred will there be enough demand on the domestic market for a sustainable upswing to take place. In the meantime, the recovery will remain muted. "Following the 3.8 per cent decline in GDP this year, we anticipate only a moderate increase of 1.1 per cent in 2010. It will take until 2011 for the situation on the labour market and favourable trading conditions for investors to create an opportunity for more robust economic growth, which will then partially compensate for the expected fiscal and monetary policy headwind," expects Bruckbauer.

 charts (PDF; 63 KB)

Enquiries: Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel. +43 (0) 50505 - 41957
E-mail: walter.pudschedl@unicreditgroup.at

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